Informal settlements, often called slums, are a global phenomenon, housing over a billion people and posing significant challenges to achieving sustainable development goals, particularly SDG 11, which aims for “decent housing for all.” The UN Habitat (2015)¹ defines informal settlements as residential areas where “inhabitants have no security of tenure vis-à-vis the land or dwellings they inhabit, where modalities range from squatting to informal rental housing.” Here, the neighborhoods “usually lack, or are cut off from, basic services and city infrastructure” (ibid.)². Additionally, the housing “may not comply with current planning and building regulations, and is often situated in geographically and environmentally hazardous areas” (ibid.)³.

Housing in informal settlements is further characterized by three elements. These are material inadequacies such as scanty structures, subpar quality of material, and unsafe construction; poor infrastructure, including unusable roads, poor or no drainage and sanitation systems; and finally, insecure tenure, which means a lack of protection from forced evictions (Bhan et al., 2020)⁴. The existence and prevalence of informal settlements are often attributed to rapid urbanization without commensurate growth in jobs and incomes (Davis 2006)⁵. As people migrate from rural to urban areas in search of work, rising prices and stagnant incomes force them to live in congested and informal settlements close to their place of work (Ray 1998)⁶.

Scale and Distribution:

Scale: According to World Bank data, 56%⁷ of Pakistan’s urban population—around 52.57 million people—live in slums. The population density in urban development makes it easier for governments to focus efforts on making affordable housing accessible to those living in informal housing rather than targeting the entire 240 million population in rural and urban settings.

Location: Pakistan’s major cities with significant slum areas include Karachi (with Orangi Town being a prominent example), Lahore, Islamabad, Faisalabad, Hyderabad, and Quetta.

Affordable Housing:

Affordable housing refers to the ability of low- to moderate-income households to find safe and healthy accommodation without spending more than 30% of their income. It includes both rental and homeownership options, which may be made affordable and accessible through government subsidies, income-determined capped market rents, public housing, or private-public partnership policies.

While affordable housing is the answer to the challenges of informal housing, governments may develop policies to focus on engaging low-income households into rental affordable housing communities, while middle-income households may be supported towards home ownership.

Financial Determinants of Housing:

Low-income households: According to the World Bank, 40% of the population in Pakistan earns less than or equal to $3.65⁸. This translates roughly to PKR 31,000 per month or an annual income of PKR 372,000, which falls below the taxable income threshold of PKR 400,000 annually. This means that the maximum that may be allocated for housing would not exceed about PKR 112,000 per year or PKR 9,300 per month. This is roughly the amount of rent that is generally payable in informal housing habitats.

Middle-income households: Federal Bureau of Revenue statistics show that 4.6 million taxpayers file returns in the 16 Regional Tax Offices across Pakistan. Karachi and Lahore account for 1.5 million of those, while other offices vary between 60,000 to 375,000. Tax collection is targeted at PKR 570 billion⁹. Based on the 80:20 analysis, PKR 456 billion would be paid by 920,000 taxpayers averaging PKR 500,000 each, while the remaining taxpayers would pay about PKR 31,000 each. Hence, the average income of the remaining taxpayers would be approximately PKR 1.2 million annually.

Cost of Ownership: At the current cost of construction of PKR 4,300 per square foot¹⁰, even a 1,000 sq. ft home worth PKR 4.3 million would require a monthly mortgage payment of PKR 57,139 at a 15% interest rate—far exceeding the PKR 9,165 that low-income earners can allocate to housing based on affordability standards. Even with a 30% down payment of PKR 1.3 million, the remaining loan amount of PKR 3.0 million would require a monthly payment of PKR 39,997, which is significantly higher than their entire earnings. Those earning PKR 1.2 million annually would have a Debt Burden Ratio of 57%.

In the above analysis, the cost of land has not been taken into account, which would further increase the cost of home acquisition.

In Karachi, rent for a one-bedroom flat begins at PKR 10.0 thousand, with the average jumping to PKR 15.8K. Two-bedroom units start at PKR 15K, with the average sitting at PKR 29.5 thousand¹¹ as per Zameen.com listings. This clearly demonstrates that low-income people cannot afford to own a home, leaving affordable rentals as the only viable housing alternative.

Savings for Downpayment:

According to SBP data, there are 91 million bank account holders¹², with those categorized as personal depositors holding PKR 15.2 trillion as of February 2025, averaging PKR 167,000 per depositor. Assuming that 80% of the deposits are held by 20% of the depositors, individuals with higher deposits would be averaging around PKR 670,000.

Drivers and Challenges:

Affordable Housing Availability:

Internationally, the German government maintains 1.2 million social housing units with rents 30% below market rates. Furthermore, their rent policy caps rent increases at 10% above the local average, and municipal housing companies offer rents 10%-15% below market rates.

Similarly, in Australia, Community Housing Providers manage 100,000+ properties with 23% lower operating costs than public housing. This enables their Commonwealth Rent Assistance program to support 1.3 million households with direct rent support¹³. This stock of properties has grown by 38,000 affordable dwellings through private investment incentives.

In the United States, rent voucher schemes by State and City governments allow 5.2 million low-income people to pay just 30% of their income as rent while the shortfall is subsidized, providing access to affordable housing¹⁴.

Institutional Focus:

PHA Foundation is one of the implementing arms of the Ministry of Housing & Works, aiming to provide low-cost housing units to low- and middle-income groups of Pakistan on an ownership basis. Since its inception in 1999, PHAF has built fewer than 10,000 housing units for the general public and Federal Government Employees at prime locations in Federal and Provincial Capitals. PHA Foundation’s budget is about PKR 5 billion annually.

At the moment, there are no government programs aimed at providing affordable rental units for low-income groups.

Fiscal Budget:

Federal: The Federal Budget has allocated PKR 28 billion¹⁵ towards Housing and Community initiatives, of which housing development is limited to PKR 1.5 billion only.

Punjab: The Government of Punjab has allocated PKR 3.8 billion¹⁶, raised via permanent debt (foreign), towards the Punjab Affordable Housing Program. Under Infrastructure Development, PKR 26.8 billion has been allocated for Housing, Urban Development, and Public Health Engineering.

In partnership with the World Bank, the Punjab Government is committed to enhancing the quantity and quality of affordable housing. The World Bank’s support enables the PAHP to fund the development of new housing units and strengthen housing institutions and systems.

The Punjab Housing and Town Planning Agency (PHATA) has an estimated budget of Rs 17 billion in receipts and Rs 13.55 billion in expenditures¹⁷.

Sindh: The Government of Sindh has earmarked PKR 2 billion¹⁸ for establishing housing units for the poor (Benazir Housing Cells). Assuming the Sindh Government grants the land for free, it would only cater to 1,000 families.

The Sindh Peoples Support Program for social protection has earmarked PKR 12 billion¹⁹ under the Sindh Social Protection Authority, which currently focuses on the Mother and Child Support Program.

Strategy for Affordable Housing

There are a number of different opinions on how to make affordable housing to citizens who lack economic means to provide for themselves. The first issue is whether the governments should pursue using it’s scarce resources to encourage ownership to limited number of citizens or encourage citizens to relinquish informal housing for formal housing by providing rental support. In this context, there seems to a thought that multi-family vertical structures may not necessarily be the solution for attaining the objective of affordable housing. In fact, there seems to be a sense of attainment of housing affordability by those that find homes in Katchi Abadis.

• Urban Sprawl or Vertical Solutions:

• Tier 1 cities (provincial and federal capital cities) find themselves with low inventory of public lands within city limits, and those that are there, have been occupied by squatters by creating katchi abadis. These katchi abadis have nearly 10 million households living in structures that would not meet basis building standards for fire and safety, ventilation, and public spaces for community and children safety purposes.

• Provincial and federal governments have very little fiscal space to build and hand-over ownership rights to squatters or homeless. History has shown that those people that were given compensation to exit a particular katchi abadi, did not move to planned town with ownership rights but moved into a new katchi abadi.

• Hence, it makes more sense that the governments either build properties that it would rent out to the squatters or low-income households, and permanently eliminate katchi abadis. In addition, it may also invite private sector, to provide rental units to those individuals that government considers eligible, at a rent not to exceed 30% of their verified income by offering them Rental Vouchers to low-income households. The private sector developers may participate in an auction and bid the minimum amount of support that they would need to create such properties, for the specified number of units and of specified size for households and individuals.

• Governments may also encourage large private sector employers to build workers housing in exchange for tax benefits, or other direct or indirect incentives, including credit facilities, etc.

• Infrastructure Issues: The private developers and / or the government would need to ensure that public spaces are available and are handed over to the municipal body. The municipal body would also need to ensure that standards are created for ensuring availability of water, sewerage and utilities. The government may emulate Singapore’s HDB model.

• The government would also need to establish transportation standards for new developments to be connected with the rest of the city. It should be noted that urban sprawl would be more difficult to manage than vertical housing as the ratio of commuters to distance would be minimized under vertical housing. Finally, the transporters may participate in an auction to seek minimum government support to provide services based on the level of minimum wages prevailing in the province.

• Crime Concerns: It is important to recognize that cities with disproportionately high level of low-income residents, where they are in UK Council housing projects or Katchi abadis have crime issues. Crime management needs manpower and this in turn is dependent on the city coverage area and the population density. Urban sprawl would increase the cost of policing. The Colombian city of Medellin successfully reduced crime with better urban planning and renewal, CCTV monitoring, and increased community engagement.

• Affordability & Gentrification: Shifting residents from katchi abadis to government-subsidized rental housing ensures affordability and better living conditions. A well-planned rental model, like Singapore’s Public Rental Scheme, can provide stability while freeing up income for other essentials.

• Social Isolation Myth: High-rises can foster strong communities with shared spaces, community centers, and mixed-use development, like Japan’s Tokyo Vertical Villages, ensuring social integration in vertical living.

• Sustainability & Urban Sprawl: Expanding horizontally strains resources, vertical housing with green roofs, solar panels, and rainwater harvesting (as seen in Punggol Eco-Town, Singapore) is a more sustainable approach.

• Balanced Urban Growth: Instead of rejecting high-rises, Karachi needs to adopt a mixed-density strategy, upgrading informal settlements and integrating mid-rise and vertical housing following China’s multi-tiered urban strategy.

High-rises aren’t the problem, poor planning is With the right policies, urban cities in Pakistan can build safe, affordable, and inclusive vertical communities, just like successful cities worldwide.

Conclusion

Provincial Governments need to take proactive steps to improve the quality and affordability of housing for its most vulnerable segment of it’s population that have been ignored due to the formal recognition of Katchi Abadis.

However, as fiscal space becomes available the Provincial Governments need to build an inventory of rental units that meet legal ownership and building standards, focusing on ensuring that public housing comes replete with education, healthcare, public transport and utilities.

Governments need to avoid promoting home ownership using taxpayers’ money given the size of the population in Katchi Abadi which at current pace would not be achieved even in a thousand years.

The government should take Sustainable Development Goals for a broader range of population which can only be addressed via planned rental units.

A government-backed rental model can lift millions from slums, ensuring they live with dignity and security. By integrating essential services and learning from successful international models, Pakistan can create sustainable urban housing, empowering its low-income citizens to break free from poverty.

References
1 https://sprf.in/evictions-and-housing-laws-in-india/
2 https://habitat3.org/wp-content/uploads/Habitat-III-Issue-Paper-22_Informal-Settlements-2.0.pdf
3 https://habitat3.org/wp-content/uploads/Habitat-III-Issue-Paper-22_Informal-Settlements-2.0.pdf
4 https://sprf.in/wp-content/uploads/2022/01/SPRF-2022_IB_Evictions-and-Housing-Laws.pdf
5 https://sprf.in/wp-content/uploads/2022/01/SPRF-2022_IB_Evictions-and-Housing-Laws.pdf
6 https://sprf.in/wp-content/uploads/2022/01/SPRF-2022_IB_Evictions-and-Housing-Laws.pdf
7 https://data.worldbank.org/indicator/EN.POP.SLUM.UR.ZS?locations=PK
8 https://thedocs.worldbank.org/en/doc/77351105a334213c64122e44c2efe523-0500072021/related/mpo-am24.pdf
9 https://www.economy.pk/fbr-targets-record-rs-570-billion-tax-collection-from-salaried-class/
10 Zameen.com
11 Zameen.com
12 https://www.sbp.org.pk/reports/stat_reviews/Bulletin/2025/Feb/Chap-3.pdf
13 https://www.aihw.gov.au/reports/housing-assistance/housing-assistance-in-australia-2023/contents-2023/financial-assistance?
14 https://www.cbpp.org/research/housing/the-housing-choice-voucher-program
15 https://www.finance.gov.pk/budget/Budget_2024_25/Budget_in_Brief.pdf
16 https://finance.punjab.gov.pk/system/files/WP24-25.pdf
17 https://www.dawn.com/news/1865086
18 https://finance.gos.pk/Home/Download?path=Budget%5CBudgetBooks%5CFY-24-25%5CVOLUME_III_Detail%5C37.%20SC21140-Housing%20%26%20Town%20Planning.pdf

 19 https://finance.gos.pk/Home/Download?path=Budget%2FBudgetBooks%2FFY-24-25%2FBudget%20Highlights.pdf